What do I need to get a small business loan from a bank?

If you are a small business owner you may come to realize that getting a bank loan is like going through the needle. It may be tough, but not totally impossible. Your task may be even more difficult if your small business is home or internet based.The key to getting a small business loan from a bank is to do your homework. Here are the kinds of preparation you will need to do to increase the chances of getting your bank loan approved.

It is important to keep in mind that banks favor an established businessperson with a solid credit rating, a sizeable bank account, and experience in the business they propose to enter, and a business plan that shows the ability to repay the loans. If you do not have the desired elements listed above then you need to double your preparations to convince the banker to lend you that loan. If your proposed small business is a start-up, bankers will want to know as much as possible about you and your business. Be prepared to answer a lot of since it takes a great deal of work to put it all together.

Unfortunately, many small business owners often make the mistake of not being adequately prepared when going to the bank for a loan. Many loan applicants do not even have the slightest idea how or when they intend to repay the money they have requested. They may not even know how much money they need.

The bottom line is that it pays off to do your homework before you ask for a loan. You should understand that the probability of getting your loan approved goes up if the degree of risk associated with lending you money goes down. In order to lower your risk and improve your odds of getting the loan, you need to anticipate the question lenders will ask you. You need to be able to present your banker insights into your business that may enable him or her to easily approve your loan. This can be done by being able to answer the following questions:

• Know exactly how much money you will need, you should be as exact as possible, adding a little for contingencies and the unforeseen extra expenses.


• You should know how you plan to use the money telling the banker that you want a loan to "have working capital" is the fastest way for your loan to be denied. Understand that there are only three things you can do with a loan: buy new assets, pay off old debts, or to pay for operating expenses. Again be specific as possible.


• Know how long it will take you to repay the loan. Your cash flow projections should help you formulate a repayment time frame for the loan.


• You should know what rate of interest rate you can afford. There is no sense in tying yourself up in a loan that will squeeze out your profits and ultimately bleed your business dry. Do not take on debt that cannot be repaid.


• Your banker will ask you what you can use as security for the loan. Your goal will be to convince the banker of the value of your collateral.


• You will also need to present that all-important written business plan explaining in detail your business objectives, projected earnings for the next one to three years, marketing strategy, and other relevant information. Have your marketing strategies outlined in detail to lend credence to your sales projections.

In addition to your business plan, you need to support your loan application with numbers.In short, this entails putting together a credit history that includes the following:

• Personal financial statement that lists your assets and liabilities


• A list of all credit cards and their current balances


• All outstanding loans, including the original balances, amounts outstanding, and current monthly payments


• Total monthly mortgage or rent payments


• Net monthly income


• Checking and savings account balances


• The value of your automobile(s), including original cost, balance owed, and current monthly payments


• The current value of all property, including real estate, stocks and bonds